How a Venture Capital Firm Promotes Diversity

Like many of today’s richest Americans, Chamath Palihapitiya, founder and CEO of Social Capital, is still in his thirties but has already made a world of difference. Palihapitiya, a Sri Lankan refugee, grew up in Toronto, Canada where his mother cleaned other people’s houses for a living. After high school, he took advantageous of the nation’s outstanding public education system and attended and graduated from one of its top engineering programs, which is located at the University of Waterloo. He worked briefly as an investment banker and then headed south to the Silicon Valley where he worked first for AOL, then for the Mayfield Fund—one of the oldest venture capital firms in the Silicon Valley—and eventually for Facebook when it was still a start up. Today, Palihapitiya runs his own venture capital firm and as this week’s headline in the Wall Street Journal read, he has become “the venture capitalist whom venture capitalists love to hate.” Why do other venture capitalists hate Palihapitiya? The answer is simple—he understands diversity, values it and promotes it in all aspects of his business. Also, his commitment to diversity had not hurt his profits one bit.

The Diversity Problem in the Silicon Valley

Over the past year, the eLeaP team has shared perspectives on myriad of diversity issues plaguing Silicon Valley companies. From the high-profile court case that Ellen Pao brought against venture capital firm Kleiner Perkins Caufiled & Byers to the ongoing efforts of Tech Inclusion, we have been tracking the tech sectors’ efforts to grapple with their diversity problems. The long and short of it is that most Silicon Valley firms are failing on the diversity front. Indeed, the dismal state of Silicon Valley diversity was exposed in a late 2015 report, appropriately called Elephant in the Valley. The results, based on a survey of a wide range of women working in the Silicon Valley, found that sexual harassment is alive and well among the region’s otherwise enlightened entrepreneurs. As reported in an earlier eLeaP post on Elephant in the Valley’s shocking findings:

87% reported being the subject of derogatory comments from male colleagues

75% said they were asked about their family life, children and marital status while interviewing (n.b., it’s actually against the law to ask these questions during an interview

60% of women reported unwanted sexual advances from either a colleague or client and 65% of those reported that the advance was from a superior

33% of the women surveyed felt afraid for their safety because of work related circumstances

Racial diversity is also an issue among many Silicon Valley firms. As widely publicized over the past two years, at most technology companies, Black employees account for 2% to 4% and Hispanic employees account for roughly 8% of the overall workforce with fewer Black and Hispanic employees occupying tech-specific jobs (e.g., engineering positions) and leadership positions.

What Chamath Palihapitiya is Doing to Promote Diversity

“The gap between the entrepreneurial and investor class,” says Palihapitiya, “Has never been further.” In short, while entrepreneurs tend to be young, socially progressive and open minded, investors do not. Because investors like to invest in projects and people that are familiar, a lot of promising young entrepreneurs–who happen to be female, Black or Hispanic–continue to be overlooked by traditional venture capital firms. Palihapitiya’s vision is different. As he recently told Fortune Magazine, “I want the firm to look like what the world looks like. That means hiring and backing minorities and women.” What really sets Palihapitiya apart from his counterparts, however, is that he has actually found a way to do this in all aspects of his work. His phenomenal success as an investor at age 38—much younger than most other venture capitalist—shows his embrace of diversity is working.